Why I Refuse to Follow These 3 Pieces of Common Financial Advice

by Alexa Mason · 24 comments

I’ve always had a love for personal finance. For me, creating budgets and crunching numbers is fun.

So when I really got serious about improving my financial situation, I’d spend my free time reading personal finance books and blogs. Some authors wanted me to follow their financial advice to the letter. Others would just highlight what worked for them. But I always found a few nuggets of recurring information and common financial advice.

To be honest, some of it just didn’t click for me. Here are three examples of common financial advice that I refuse to follow:

Failed advice #1: Set up automatic bill pay

When almost all of my favorite blogs were talking about how great automatic bill pay was, I just had to try it. I switched a few of my bills to auto pay, and for the first couple months everything was fine. Then I got a bit lazy…

As a freelancer, I get paid by several different clients. And I like to let my money build up before transferring it to my checking account, so I’m not tempted to spend money I shouldn’t.

Once I forgot to transfer money to pay a bill, overdrew my checking account, and was charged a $30 fee! (Which I later got waived.)

After this incident, I quickly took my bills off auto pay and went back to receiving a statement in the mail. Unlike a lot of others, I actually prefer to pay my bills by check. By doing this, I feel the sting of money coming out of my bank account, and I keep better track of my account balance.

Failed advice #2: Use credit cards for their rewards

This has become a huge trend over the last few years. You earn rewards that can be used for amazing vacations or extra cash — all for spending like you normally do.

When I tried to use rewards credit cards, I had this overwhelming feeling I was spending more money than I would have with my debit card. I fought it.

Then my credit card statement came, and it was like a punch in the face. I’m not sure I spent more because of the credit card — but I knew one thing: I didn’t want to pay that bill! I ultimately decided that using a credit card wasn’t for me, so I ditched the idea of racking up points.

And just in case you’re wondering, studies have shown that using a credit card makes you spend more. (Here’s one from the American Psychological Association.) While it might not be true for everyone, it’s more common than you think. Many people probably just aren’t willing to admit it.

Failed advice #3: Don’t get a tax refund

I stand firm on this one; in fact, I’ve received a tax refund of at least $800 every single year I have worked. Personally, I’d rather let the government hold on to some of my money for the year than owe taxes. And for many, a tax refund IS a good thing.

Here’s why:

  • You get back a lump sum of money: Even if you received your tax refund disbursed in small increments throughout the year, it doesn’t have the power a lump sum of money does. Many people will blow an extra $25 a week — but when they get back $1,500, they feel like they can do something with it.
  • Interest rates are super low: The argument against getting tax refunds is that you’re giving the government an interest-free loan. So what? Put that same amount of money in checking, and it will get spent. Put that money in a savings account, and you’ll earn less than 1% interest.
  • Some of us aren’t good savers: Not everyone is going to save that extra tax money each pay period. It’s just a lot easier to have the government save it for you. It requires no willpower.

The bottom line is we’re all different, and there are no set-in-stone rules to personal finance. At the end of the day, you have to do what works for you.

Is there any common financial advice you refuse to follow?

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{ read the comments below or add one }

  • Walter says:

    I totally agree with all 3, since financial control is non-existant in my life. 2 years ago my credit cards were out of control and I was living large. I had also been an advocate of not letting the gov handle my money until I reached a total bill both Fed & State of over 14K. 2 years ago went to an all cash (or debit card) lifestyle, adopted frugality, budgeting and downsizing/de-cluttering. Out of debt now and have only mortgage & utilities. FICO has suffered not enough info to generate a decent score. No hard inquiries, not credit card debt, no auto loans as my score goes down monthly I remember what it was like to be above 750 and in debt. Retired, pay all bills online, obsess about my financial situation daily, drive an older auto with liability no collision, but can go out an buy almost anything I want with cash, I usually talk myself out of it if I wait 24 hours.

  • JMK says:

    I agree you need really consider your personality before adopting any advice. What works perfectly for one person would be a disaster for another. For ME, I disagree with two out of three of the above, but recognize my way only has to suit me.
    #1 auto pay – everyone seems to be assuming that auto pay has to mean automatically withdrawing from your bank account. The two are completely separate decisions. I have autopay on everything where it’s offered but they all charge to my credit card. I never have a late payment. If they over charge then my CC balance is temporarily high until I have them correct it and no over draft surprises in the meantime. All the advantages of auto payments with none of the downside risks.
    #2 using credit cards for the benefits – since I have everything on autopay I’m earning free flights just for choosing this method to pay my recurring monthly amounts for internet, insurance, cell phones, alarm monitoring, etc. We also pay for all gas and groceries this way too. As for the “shock” of the statement arriving, I have to say I haven’t looked the online statements in close to 2yrs. I lay out my spending plan in Excel a year in advance and as the weeks pass I monitor what’s been posted to the online VISA account and mark it off as done. I pay off ALL that week’s charges every week so the monthly statement is completely irrelevant as it’s 3 or 4 payments behind reality. There is no shocking statement when you are always paying for charges that are no more than 7 days old and fresh in your mind. On the up side our card usage combined with points for business travel mean our family flies to Europe free every summer. The only recurring spending on the card that isn’t a fixed bill is our weekly gas and groceries. On the spreadsheet I include a set amount for each every week. As the weeks pass I replace the plug number with the actual one which makes it very easy to see if we’ve spent more than what was allocated. No extra spending excuses due to CC use. I think of my CC as a slow motion debit card. Once I swipe I consider the money gone and our available balance on the spreadsheet is reduced correspondingly.
    #3 No tax refund. For our situation (again that’s the key) our refunds are completely the result of our annual contributions to our tax deferred retirement accounts. We normally contribute about the same amount every year and our resulting refund is the same. We could ask our employers to deduct less tax at source to avoid the refund, but what if things change and we don’t contribute as much as planned? We’d have a major tax bill looming at year end because we’d have been under taxed all year. If you are being taxed incorrectly for your marital status or number of kids or something, by all means have it corrected and then immediately set up automatic transfers of the excess you’ll receive so it’s gone to savings/retirement or where ever you want it.

  • Assnap Kined says:

    David – There is another issue to consider with #3. If someone files an
    electronic tax return as you (illegally, of course…but they don’t care), it may take the IRS from 12 -18 months to get the situation fixed and get your money to you. I actually have set myself up to now owe money to them instead of getting that annual money back due to this potential situation.

    Assnap Kined

  • Nina says:

    I don’t follow any of that “expert” advice, and some people think I should “know better” since I’m an accountant. Automatic bill pay – dangerous unless you have a large cushion in your checking account. The exception is a direct deposit to savings – I pay myself first. That’s a way to get ahead without having to discipline myself. Credit cards – it takes A LOT of discipline not to overspend. Tax Refund – The low interest rates do make it a moot point.

  • Anon says:

    Some banks now offer “push” payments instead of “pull.” That is to say, if you have a recurring bill that’s the same amount each month, you can set it up so that the bank sends them a check from your account . It saves on stamps and envelopes, too. Ally does this, and I would assume other banks do as well.

    • David @ MoneyNing.com says:

      I’m sure most banks do, as I’ve seen them in a few places already. Most of my bills that have the same amount each month is on auto-debit for me, so I have yet to use this feature though!

  • Amy says:

    I do the automatic payments for bills, but I cannot bring myself to do the automatic savings. Every month is different as far as budgeting goes, so I want to do the savings transfer myself once I figure out the amount. I also only do the transfers once the money is actually in the account. Unfortunately, my employer is less than perfect when it comes to being paid on time.

    • David @ MoneyNing.com says:

      Does your employer pay you cash? Or are you self employed and thus are paid by your customers? W2 employees should be paid on time so it might be a good idea to look into the situation!

  • Ken says:

    Starting with point #3, as I am largely self employed I usually have to pay in quarterly and it varies year to year. As a rule I don’t believe in letting the government hold my hard earned money. They don’t always do a great job of spending it anyway. And they get what is theirs after the accountant has figured out what is due. Point #2, I use 2 credit cards, Amtrak Rewards and a US Bank Perks card for flying. One is for gas for the cars and the other is for grocery shopping, no exceptions. It’s paid monthly and I don’t find my self shopping fir extra of either as there is a budget involved. Point # 1, pay electronically but manually. Save the stamps and as my bank charges for checks I save on those as well. Discipline is key.

    • David @ MoneyNing.com says:

      Estimating tax payment is no fun, as it’s a major source of headache for me. I wish there’s a simple rule that doesn’t involve penalties! I mean, if I’ve always been able to pay by the tax deadline, why should I be dinged because I didn’t “prepay”?

  • Steve says:

    Wow. Three horrible pieces of advice. Sounds like you need to work on your discipline. Getting a big tax refund is bad. Again, discipline is your problem. Invest, do not spend. The credit card rewards are great. Just use it for things you would spend on anyway and pay it off. I haven’t paid for a Southwest Airlines flight in years.

    • David @ MoneyNing.com says:

      Remember, personal finance is just as much about psychology as it is about the math. All three of the stated financial advice is based on what’s mathematically most beneficial, but many people still end up losing out because most people are emotional with spending.

      You may be super disciplined, but everyone should do what ultimately works for them.

  • Aldo Rancier says:

    I’m with you on the automatic bill pay. I rather be in control of what I pay and when I pay it. I used to have my student loans automatically withdrawn from my account and for years I just paid the minimum. I stopped that and now since I have to pay the bill myself, I always send more to try to pay it faster.

    I do use some credit cards for their rewards but I don’t try to get as many points as possible. I only buy what’s in my budget and if I get points then good for me.

    I also get a tax refund… it feels good. I know some people that don’t get a tax refund and every year they have to pay. They are never happy when they have to write that check. Not letting the government hold your money might not be a good financial move, but it does feel good when I get my check in the mail.

    • David @ MoneyNing.com says:

      Can you easily do electronic transfers to pay off your student loan debt? If you can, check to see if they calculate interests daily. And if they do, then just send them the extra payments as soon as you have the extra cash instead of waiting until the next payment.

      It’s a little more cumbersome this way, but there’s no reason to have the extra cash sit in your checking account while you’re paying interests with your debt!

  • Bill says:

    I do use autopay for most of my recurring bills and some companies insist on it. I understand that there is a risk of overpayment (it has happened to me once), but that is less of a concern than the possibility of a late payment. I do not use auto pay for credit card bills. I want to know when and how much I paid the credit card companies. I do pay the credit card companies on line and I try to pay most bills online and save the price of a stamp. It is still a good idea to check your bank account every few days so that you know what is coming in and going out.

    I use my credit cards for fuel and travel with some occasional mail order. In general, I don’t use credit cards for shopping. I have one card that pays a fuel rebate monthly and a home store card that pays a 2% rebate quarterly, which just about negates the extra sales tax in the city where this store is located. I buy supplies from this store regularly, so it makes sense to get the rebate. I pay each credit card in full every month.

    I would prefer to get a small tax refund each year. I have had a few years that I had a balance due, in spite of my efforts to have enough withheld. What tax refund I get goes into savings and is usually earmarked to pay insurance premiums and property taxes, for which there is no withholding.

    • David @ MoneyNing.com says:

      Thanks for sharing what’s been working for you.

      The super low risk free interest rates have basically made the interest free loan a moot point. For many people, the deduction right from their paycheck will act as a good savings tool anyway, so having a small refund is a pretty good strategy these days.

  • David @ MoneyNing.com says:

    Is there any way you can manually pay electronically and still feel the pain of the payment? I ask because all the extra paper/stamps/envelopes is just another added expense you have to pay for.

    But then again, if it keeps your spending in check, then the cost is money well spent.

    • Robert says:

      Any decent bank or credit union will have online bill pay, which is essentially this. That’s what we do for most of our bills (though we have the fixed-cost ones like the mortgage on automatic pay).

      • David @ MoneyNing.com says:

        That’s true, but there’s something to be said about spending time to write/seal envelope and mail the actual checks and bills. The time required to perform the process can force her to slow down to recognize the pain, while bill pay is sometimes so easy that you don’t really feel it.

        This is similar to why studies show that people spend 30% more with credit cards. You just don’t feel it enough because taking out the plastic is so easy.

  • Retired by 40 says:

    Hate automatic bill payments! I posted about this recently, but the gist was that I am more than happy to pay online and save a stamp, but I don’t want you to automatically pull your money from my account. Maybe I’m a control freak, but that’s the way I like it. I want to be able to view and discrepancies with my bill first! My only different one is transfers to savings, because I won’t force myself into if it’s not automatic!

    • David @ MoneyNing.com says:

      Sometimes you just have to do what works for you, and no, I don’t think you are a control freak!

  • Alexa says:

    I do have my IRA contribution automatically taken out too. It’s only once a month and since it’s a set amount I feel safe with that one.

    And OMG I would have been mortified to receive a $5,000 bill!! It’s just so easy for computers to screw up billing. The only bills that I have had that have been a bit screwed up are internet bills from AT&T but they’ve only been off by about $50.

  • John C @ Action Economics says:

    I’m with you on the automatic billpay. Another hazard of it is if one of your service providers screws up and issues a large bill. We had a screw up with our cities water department and they sent us a $5,000 water bill, had it been on autopay with e-statements we wouldn’t have noticed until the account bounced.

    I do use automatic payments for my investing, but that is a fixed amount every week that I control, so it’s easier to plan for.

    My Failed Advice is getting a 15 year mortgage. I think a 15 year mortgage in most scenarios is the way to go, however we bought our home on a 30 year. The interest rate at the time wasn’t a huge difference and we have automated an extra payment each month to put in on a 15 year schedule. Having the mortgage be a 30 year gives us the flexibility of having lower payments if we need it at some point.

    • David @ MoneyNing.com says:

      A $5,000 would surely freak me out!! But I don’t use auto bill pay either, so I’m glad the over-drafting issue won’t happen to me.

      Using a 30 year mortgage is another good one. Sometimes, the extra cash flow can be useful if you need it. Good call.

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